Informal debt snare loops The Bank of Thailand released the minutes of the joint meeting The MPC and the NEPC reveal that the third wave of the Covid-19 outbreak affects fragile household incomes. Pushing household debt to 90.5% of GDP, supporting banks to accelerate proactive debt restructuring – restore income Worried about low interest rates making people seeking high returns risk the result of an uptrend in interest cycles? Ready to coordinate with regulators to issue additional measures to take care of
On July 12, 2021, the Bank of Thailand (BOT) disclosed the results of a joint meeting between The Monetary Policy Committee (MPC) and the Financial Institutions Policy Committee (FIPC) on July 7, 2021 to monitor and assess the stability of the Thai financial system. The key issues are as follows:
The meeting agreed that the overall Thai financial system remained stable. Commercial Banks (Banks) Securities Business And the insurance business has a high level of capital. while the financial markets are stable and able to function normally By the macro stress test conducted by regulators, it was found that commercial banks Securities companies, mutual funds and insurance companies have sufficient liquidity and have a financial position that can support the crisis
However, the situation of the COVID-19 outbreak A new, more likely ripple of viral mutation. In addition, the slower and inconsistent economic recovery has made the business and household sectors more vulnerable. Coupled with the high level of household debt, low-income households are more vulnerable.
Although the government has continually implemented measures to help and relieve the financial burden of the household sector (such as the measures to help small debtors phase 1-3), but they are not enough. Therefore, it is necessary to prepare more precise and timely measures to manage such risks. Along with continued accommodative monetary policy
To help support economic recovery and avoid severe economic scars that limit long-term economic growth and pass risks to the financial system. The meeting assessed the situation comprehensively and weighed the risk management in two main areas as follows:
1. The problem of household debt that is currently at a high level of 90.5% of the country’s gross domestic product (GDP) and the Covid-19 crisis. This has caused many households to have trouble paying off their debts. which will be even more problematic During the rising interest rate cycle or the economy faces high volatility, although the BOT and related agencies have taken measures to help and take care of such problems closely. But the new wave of COVID-19 epidemic exacerbate the problem
Therefore, an urgent measure is to accelerate and establish mechanisms to incentivize financial institutions to seriously improve their debt restructuring for retail debtors with high debt burdens. The progress and effectiveness of debtor assistance are closely monitored.
However, from the initial assessment The size of the assistance that households need may be too high to burden financial institutions alone. Therefore, it is necessary to consider the roles of the government and capital markets.
In addition, the problem of household debt is complex to solve. Because of the risk of moral hazard, almost a quarter of the household debt figures published by the Bank of Thailand are those of financial institutions outside the BOT’s oversight, and this figure has not yet been counted. For some types of debt, such as informal debt, sustainable household debt solutions need to be holistic. It should also accelerate the recovery of household income in a sustainable manner. to provide a comprehensive solution to the problem
For a long-term solution to household debt problems Arrangements must be made for (1) a credit information infrastructure that covers all household debt obligations; (2) advocating responsible and fair lending for creditors (responsible lending); understanding and financial discipline; and (4) promoting alternative financial service providers to help reduce informal debt.
2. Accumulation of risks in a situation where interest rates have remained low for a long time This may affect the stability of the Thai financial system in the future, for example, the behavior of some investors seeking higher returns by underestimating investment risks (search for yield behavior), which may be affected. When there is an increase in the interest rate cycle
Therefore, it is necessary to consider the framework and guidelines for implementing macro-stability measures. (Macro-prudential) to be ready in case of necessity after the economy tends to recover strongly. by integrating between the Bank of Thailand and various government agencies to help reduce the accumulation of risks and prevent the transmission of risks from one sector to other sectors. in the financial economy
In the event that the economic and financial situation is still uncertain Regulatory agencies including the Bank of Thailand, the Securities and Exchange Commission The Office of Insurance Commission will jointly assess various risks and closely monitor the adequacy and effectiveness of the measures taken. and push to achieve the goals set
as well as being prepared to take other measures more if needed to limit the impact on Thai financial stability and support economic recovery It will coordinate with government agencies and adjust common governance practices in accordance with the changing economic and financial context.
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